XNAS:BONT Bon-Ton Stores Inc Quarterly Report 10-Q Filing - 4/28/2012

Effective Date 4/28/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarter ended April 28, 2012

 

Commission File Number

 

 

0-19517

 

THE BON-TON STORES, INC.

2801 East Market Street

York, Pennsylvania 17402

(717) 757-7660

 

Incorporated in Pennsylvania

 

IRS No. 23-2835229

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

 

As of May 25, 2012, there were 17,094,837 shares of Common Stock, $.01 par value, and 2,951,490 shares of Class A Common Stock, $.01 par value, outstanding.

 

 

 



 

PART I:  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

THE BON-TON STORES, INC.

CONSOLIDATED BALANCE SHEETS

 

(In thousands except share and per share data)

 

April 28,

 

January 28,

 

(Unaudited)

 

2012

 

2012

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

14,295

 

$

14,272

 

Merchandise inventories

 

718,295

 

699,504

 

Prepaid expenses and other current assets

 

75,391

 

69,032

 

Total current assets

 

807,981

 

782,808

 

Property, fixtures and equipment at cost, net of accumulated depreciation and amortization of $756,491 and $743,312 at April 28, 2012 and January 28, 2012, respectively

 

661,788

 

677,133

 

Deferred income taxes

 

12,871

 

12,385

 

Intangible assets, net of accumulated amortization of $53,934 and $51,975 at April 28, 2012 and January 28, 2012, respectively

 

117,193

 

119,165

 

Other long-term assets

 

24,993

 

26,712

 

Total assets

 

$

1,624,826

 

$

1,618,203

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

218,375

 

$

205,492

 

Accrued payroll and benefits

 

36,080

 

31,636

 

Accrued expenses

 

139,584

 

162,855

 

Current maturities of long-term debt

 

7,118

 

8,066

 

Current maturities of obligations under capital leases

 

3,979

 

4,365

 

Deferred income taxes

 

17,146

 

16,231

 

Total current liabilities

 

422,282

 

428,645

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

872,733

 

814,271

 

Obligations under capital leases, less current maturities

 

55,730

 

56,677

 

Other long-term liabilities

 

182,309

 

187,003

 

Total liabilities

 

1,533,054

 

1,486,596

 

 

 

 

 

 

 

Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Preferred Stock — authorized 5,000,000 shares at $0.01 par value; no shares issued

 

 

 

Common Stock — authorized 40,000,000 shares at $0.01 par value; issued shares of 17,456,204 and 17,081,376 at April 28, 2012 and January 28, 2012, respectively

 

175

 

171

 

Class A Common Stock — authorized 20,000,000 shares at $0.01 par value; issued and outstanding shares of 2,951,490 at April 28, 2012 and January 28, 2012

 

30

 

30

 

Treasury stock, at cost — 337,800 shares at April 28, 2012 and January 28, 2012

 

(1,387

)

(1,387

)

Additional paid-in capital

 

155,716

 

155,400

 

Accumulated other comprehensive loss

 

(72,760

)

(74,356

)

Retained earnings

 

9,998

 

51,749

 

Total shareholders’ equity

 

91,772

 

131,607

 

Total liabilities and shareholders’ equity

 

$

1,624,826

 

$

1,618,203

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

THIRTEEN

 

 

 

WEEKS ENDED

 

(In thousands except per share data)

 

April 28,

 

April 30,

 

(Unaudited)

 

2012

 

2011

 

 

 

 

 

 

 

Net sales

 

$

640,771

 

$

649,881

 

Other income

 

13,526

 

14,600

 

 

 

654,297

 

664,481

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Costs of merchandise sold

 

421,216

 

419,267

 

Selling, general and administrative

 

228,240

 

222,039

 

Depreciation and amortization

 

22,187

 

24,513

 

Amortization of lease-related interests

 

1,183

 

1,195

 

Loss from operations

 

(18,529

)

(2,533

)

Interest expense, net

 

20,573

 

23,305

 

Loss on extinguishment of debt

 

1,169

 

9,450

 

 

 

 

 

 

 

Loss before income taxes

 

(40,271

)

(35,288

)

Income tax provision

 

509

 

700

 

 

 

 

 

 

 

Net loss

 

$

(40,780

)

$

(35,988

)

 

 

 

 

 

 

Per share amounts —

 

 

 

 

 

Basic:

 

 

 

 

 

Net loss

 

$

(2.23

)

$

(2.01

)

 

 

 

 

 

 

Diluted:

 

 

 

 

 

Net loss

 

$

(2.23

)

$

(2.01

)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

 

 

THIRTEEN

 

 

 

WEEKS ENDED

 

(In thousands)

 

April 28,

 

April 30,

 

(Unaudited)

 

2012

 

2011

 

 

 

 

 

 

 

Net loss

 

$

(40,780

)

$

(35,988

)

Other comprehensive income, net of tax:

 

 

 

 

 

Amortization of pension and postretirement benefit plans

 

1,596

 

503

 

Amortization of cash flow derivatives

 

 

452

 

Other comprehensive income

 

1,596

 

955

 

Comprehensive loss

 

$

(39,184

)

$

(35,033

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

THIRTEEN

 

 

 

WEEKS ENDED

 

(In thousands)

 

April 28,

 

April 30,

 

(Unaudited)

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(40,780

)

$

(35,988

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

22,187

 

24,513

 

Amortization of lease-related interests

 

1,183

 

1,195

 

Share-based compensation expense

 

1,369

 

1,258

 

(Gain) loss on sale of property, fixtures and equipment

 

(3,210

)

6

 

Reclassifications of accumulated other comprehensive loss

 

1,596

 

955

 

Loss on extinguishment of debt

 

1,169

 

9,450

 

Amortization of deferred financing costs

 

2,171

 

2,124

 

Amortization of deferred gain on sale of proprietary credit card portfolio

 

(603

)

(603

)

Deferred income tax provision

 

428

 

419

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in merchandise inventories

 

(18,791

)

(21,520

)

(Increase) decrease in prepaid expenses and other current assets

 

(6,359

)

14,881

 

(Increase) decrease in other long-term assets

 

(596

)

678

 

Increase in accounts payable

 

23,754

 

22,571

 

Decrease in accrued payroll and benefits and accrued expenses

 

(12,609

)

(31,318

)

Increase in income taxes payable

 

 

367

 

Decrease in other long-term liabilities

 

(4,378

)

(1,815

)

Net cash used in operating activities

 

(33,469

)

(12,827

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(14,288

)

(7,843

)

Proceeds from sale of property, fixtures and equipment

 

8,257

 

15

 

Net cash used in investing activities

 

(6,031

)

(7,828

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Payments on long-term debt and capital lease obligations

 

(106,061

)

(214,689

)

Proceeds from issuance of long-term debt

 

161,216

 

244,684

 

Cash dividends paid

 

(961

)

 

Restricted shares forfeited in lieu of payroll taxes

 

(1,067

)

(3,555

)

Proceeds from stock options exercised

 

18

 

324

 

Deferred financing costs paid

 

 

(5,861

)

Decrease in book overdraft balances

 

(13,622

)

(2,991

)

Net cash provided by financing activities

 

39,523

 

17,912

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

23

 

(2,743

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

14,272

 

16,339

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

14,295

 

$

13,596

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



 

THE BON-TON STORES, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

 

 

Additional

 

Other

 

 

 

 

 

(In thousands except per share data)

 

Common

 

Common

 

Treasury

 

Paid-in

 

Comprehensive

 

Retained

 

 

 

(Unaudited)

 

Stock

 

Stock

 

Stock

 

Capital

 

Loss

 

Earnings

 

Total

 

BALANCE AT JANUARY 28, 2012

 

$

171

 

$

30

 

$

(1,387

)

$

155,400

 

$

(74,356

)

$

51,749

 

$

131,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

(40,780

)

(40,780

)

Other comprehensive income

 

 

 

 

 

1,596

 

 

1,596

 

Dividends to shareholders, $0.05 per share

 

 

 

 

 

 

(971

)

(971

)

Restricted shares forfeited in lieu of payroll taxes

 

(2

)

 

 

(1,065

)

 

 

(1,067

)

Proceeds from stock options exercised

 

 

 

 

18

 

 

 

18

 

Share-based compensation expense

 

6

 

 

 

1,363

 

 

 

1,369

 

BALANCE AT APRIL 28, 2012

 

$

175

 

$

30

 

$

(1,387

)

$

155,716

 

$

(72,760

)

$

9,998

 

$

91,772

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

1.             BASIS OF PRESENTATION

 

The Bon-Ton Stores, Inc., a Pennsylvania corporation, was incorporated on January 31, 1996 as the successor of a company incorporated on January 31, 1929.  The Bon-Ton Stores, Inc. operates, through its subsidiaries, 272 stores in 23 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner’s, Boston Store, Carson Pirie Scott, Elder-Beerman, Herberger’s and Younkers nameplates and, in the Detroit, Michigan area, under the Parisian nameplate. The Bon-Ton Stores, Inc. conducts its operations through one business segment.

 

The accompanying unaudited consolidated financial statements include the accounts of The Bon-Ton Stores, Inc. and its wholly owned subsidiaries (collectively, “the Company”).  Variable interest entities are consolidated where it has been determined the Company is the primary beneficiary of those entities’ operations.  All intercompany transactions have been eliminated in consolidation.

 

The unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and do not include all information and footnotes required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.  In the opinion of management, all adjustments considered necessary for a fair presentation of interim periods have been included.  The Company’s business is seasonal in nature and results of operations for the interim periods presented are not necessarily indicative of results for the full fiscal year.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

 

All references to the “first quarter of 2012” and the “first quarter of 2011” are to the thirteen weeks ended April 28, 2012 and April 30, 2011, respectively.  All references to “2012” are to the fifty-three weeks ending February 2, 2013; references to “2011” are to the fifty-two weeks ended January 28, 2012.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions about future events.  These estimates and assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and the reported amounts of revenues and expenses.  Such estimates include those related to merchandise returns, inventories, long-lived assets, intangible assets, insurance reserves, contingencies, litigation and assumptions used in the calculation of income taxes and retirement and other post-employment benefits, among others.  These estimates and assumptions are based on management’s best estimates and judgments.  Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.  Management adjusts such estimates and assumptions when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.  Changes in estimates resulting from further changes in the economic environment will be reflected in the financial statements in future periods.

 

Previously Issued Accounting Standards

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which amends FASB Codification Topic 220 on comprehensive income disclosures.  The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements, while eliminating the option to report other comprehensive income and its components in the statement of changes in equity.  The provisions of ASU 2011-05 were adopted in the first quarter of 2012.  The adoption of ASU 2011-05 did not impact the Company’s consolidated financial position, results of operations or cash flows as it required only a change in the format of presentation.

 

7



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

In May 2011, ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”), was issued, amending FASB Codification Topic 820 on fair value measurements and disclosures.  The amendments (1) clarify the FASB’s intent regarding application of existing fair value measurement guidance, (2) revise certain measurement and disclosure requirements that change or modify a principle to achieve convergence with international accounting standards and (3) expand the information required to be disclosed with respect to fair value measurements categorized in Level 3 fair value measurements.  The provisions of ASU 2011-04 were adopted in the first quarter of 2012.  The adoption of ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements.

 

2.                                      PER-SHARE AMOUNTS

 

The following table presents a reconciliation of net loss and weighted average shares outstanding used in basic and diluted earnings (loss) per share (“EPS”) calculations in the first quarter in each of 2012 and 2011:

 

 

 

THIRTEEN

 

 

 

WEEKS ENDED

 

 

 

April 28,

 

April 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Basic Loss Per Common Share

 

 

 

 

 

Net loss

 

$

(40,780

)

$

(35,988

)

Less: Income allocated to participating securities

 

 

 

Net loss available to common shareholders

 

$

(40,780

)

$

(35,988

)

 

 

 

 

 

 

Weighted average common shares outstanding

 

18,287,395

 

17,943,590

 

 

 

 

 

 

 

Basic loss per common share

 

$

(2.23

)

$

(2.01

)

 

 

 

 

 

 

Diluted Loss Per Common Share

 

 

 

 

 

Net loss

 

$

(40,780

)

$

(35,988

)

Less: Income allocated to participating securities

 

 

 

Net loss available to common shareholders

 

$

(40,780

)

$

(35,988

)

 

 

 

 

 

 

Weighted average common shares outstanding

 

18,287,395

 

17,943,590

 

Common shares issuable - stock options

 

 

 

Weighted average common shares outstanding assuming dilution

 

18,287,395

 

17,943,590

 

 

 

 

 

 

 

Diluted loss per common share

 

$

(2.23

)

$

(2.01

)

 

Due to the Company’s net loss position, weighted average unvested restricted shares (participating securities) of 1,475,536 and 1,345,724 for the first quarter in each of 2012 and 2011, respectively, were not considered in the calculation of net loss available to common shareholders used for both basic and diluted EPS.

 

In addition, weighted average stock option shares (non-participating securities) of 968,943 and 1,022,812 for the first quarter in each of 2012 and 2011, respectively, were excluded from the calculation of diluted EPS as they would have been antidilutive.  Certain of these stock option shares were excluded solely

 

8



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

due to the Company’s net loss position.  Had the Company reported net income for the first quarter in each of 2012 and 2011, these shares would have had an effect of 93,769 and 317,738 dilutive shares, respectively, for purposes of calculating diluted EPS.

 

3.             FAIR VALUE MEASUREMENTS

 

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) defines fair value and establishes a framework for measuring fair value.  ASC 820 establishes fair value hierarchy levels that prioritize the inputs used in valuations determining fair value.  Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.  Level 2 inputs are primarily quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions.

 

The carrying values of the Company’s cash and cash equivalents, accounts payable and financial instruments reported within prepaid expenses and other current assets and other long-term assets approximate fair value.

 

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of April 28, 2012 are as follows:

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying Value

 

Total
Estimated Fair
Value

 

Quoted Prices
in Active
Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Senior notes

 

$

464,000

 

$

383,960

 

$

383,960

 

$

 

$

 

Mortgage facilities

 

231,781

 

235,650

 

 

 

235,650

 

Senior secured credit facility

 

184,070

 

184,070

 

 

 

184,070

 

Total

 

$

879,851

 

$

803,680

 

$

383,960

 

$

 

$

419,720

 

 

The carrying value and estimated fair value of the Company’s long-term debt, including current maturities but excluding capital leases, as of January 28, 2012 are as follows:

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

Carrying Value

 

Total
Estimated Fair
Value

 

Quoted Prices
in Active
Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Senior notes

 

$

464,000

 

$

298,180

 

$

298,180

 

$

 

$

 

Mortgage facilities

 

238,902

 

244,026

 

 

 

244,026

 

Senior secured credit facility

 

119,435

 

119,435

 

 

 

119,435

 

Total

 

$

822,337

 

$

661,641

 

$

298,180

 

$

 

$

363,461

 

 

9



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

The Level 3 fair value estimates are determined by a discounted cash flow analysis utilizing a discount rate the Company believes is appropriate and would be used by market participants.  There was no change in the valuation technique used to determine the Level 3 fair value estimates.

 

4.                                      INTEREST RATE DERIVATIVES

 

It is the policy of the Company to identify on a continuing basis the need for debt capital and evaluate financial risks inherent in funding the Company with debt capital.  In conjunction with this ongoing review, the debt portfolio and hedging program of the Company is managed to: (1) reduce funding risk with respect to borrowings made or to be made by the Company to preserve the Company’s access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) control the aggregate interest rate risk of the debt portfolio. The Company has previously entered and may in the future enter into interest rate swap agreements to change the fixed/variable interest rate mix of the debt portfolio in order to maintain an appropriate balance of fixed-rate and variable-rate debt and to mitigate the impact of volatile interest rates.  These derivatives are accounted for in accordance with ASC 815, Derivatives and Hedging (“ASC 815”).

 

On the date the derivative instrument is entered into, the Company designates the derivative as a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”).  Changes in the fair value of a derivative that is designated as, and meets all required criteria for, a cash flow hedge are recorded in other comprehensive income or loss and reclassified into the statement of operations as the underlying hedged item affects earnings, such as when quarterly settlements are made on the hedged forecasted transaction.  The portion of the change in fair value of a derivative associated with hedge ineffectiveness or the component of a derivative instrument excluded from the assessment of hedge effectiveness, if any, is recorded in the current statement of operations.  Also, changes in the fair value of a derivative that is not designated as a hedge, if any, are entirely recorded in the statement of operations. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions; this process includes relating all derivatives that are designated as cash flow hedges to specific balance sheet assets or liabilities.  The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the respective derivative.  In addition, if the forecasted transaction is no longer probable of occurring, any amounts in accumulated other comprehensive income or loss (“AOCI”) related to the derivative are recorded in the statement of operations for the current period.

 

The Company had two interest rate swap contracts to effectively convert a portion of its variable-rate debt to fixed-rate debt, both of which were entered into on July 14, 2006 and expired on July 14, 2011.

 

On December 4, 2009, the Company amended and restated its prior senior secured credit facility, at which time the Company de-designated and re-measured its two interest rate swaps and discontinued hedge accounting prospectively in accordance with ASC 815.

 

The following table summarizes the effect of the expired interest rate swaps on the consolidated statement of operations and AOCI, after being de-designated on December 4, 2009:

 

10



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

 

 

Location of Loss
Reclassified from
AOCI to the
Statement of
Operations

 

Amount of
Loss
Reclassified
from AOCI to
the Statement
of Operations

 

Location of Loss
Recognized in the
Statement of
Operations

 

Amount of
Loss
Recognized
in the
Statement of
Operations

 

13 Weeks Ended April 30, 2011

 

Interest expense, net

 

$

452

 

Interest expense, net

 

$

56

 

 

5.             SUPPLEMENTAL BALANCE SHEET INFORMATION

 

Prepaid expenses and other current assets were comprised of the following:

 

 

 

April 28,

 

January 28,

 

 

 

2012

 

2012

 

Prepaid expenses

 

$

34,534

 

$

27,913

 

Other receivables

 

40,857

 

41,119

 

Total

 

$

75,391

 

$

69,032

 

 

6.             SUPPLEMENTAL CASH FLOW INFORMATION

 

The following supplemental cash flow information is provided for the periods reported:

 

 

 

THIRTEEN

 

 

 

WEEKS ENDED

 

 

 

April 28,

 

April 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest, net of amounts capitalized

 

$

30,299

 

$

37,629

 

Income taxes, net of refunds received

 

45

 

333

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Property, fixtures and equipment included in accrued expenses

 

$

4,110

 

$

2,142

 

Declared dividends to shareholders included in accrued expenses

 

971

 

947

 

 

7.             EXIT OR DISPOSAL ACTIVITIES

 

The following table summarizes exit or disposal activities during the first quarter of 2012 related to targeted reductions in administrative and support functions and store closings in 2012 and 2011:

 

11



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

 

 

Termination
Benefits

 

Other Costs

 

Total

 

Balance as of January 28, 2012

 

$

612

 

$

 

$

612

 

Provision

 

2,755

 

352

 

3,107

 

Payments

 

(1,664

)

(352

)

(2,016

)

Balance as of April 28, 2012

 

$

1,703

 

$

 

$

1,703

 

 

The above provision was included within selling, general and administrative expense.

 

8.             EMPLOYEE DEFINED AND POSTRETIREMENT BENEFIT PLANS

 

The Company provides benefits to certain current and former associates who are eligible under a qualified defined benefit pension plan and various non-qualified supplemental pension plans (collectively, the “Pension Plans”).  Net periodic benefit expense for the Pension Plans includes the following (income) and expense components:

 

 

 

THIRTEEN

 

 

 

WEEKS ENDED

 

 

 

April 28,

 

April 30,

 

 

 

2012

 

2011

 

Interest cost

 

$

2,116

 

$

2,373

 

Expected return on plan assets

 

(2,157

)

(2,359

)

Recognition of net actuarial loss

 

1,690

 

628

 

Net periodic benefit expense

 

$

1,649

 

$

642

 

 

During the first quarter of 2012, contributions of $3,001 were made to the Pension Plans.  The Company anticipates contributing an additional $14,786 to fund the Pension Plans in 2012 for an annual total of $17,787.

 

The Company also provides medical and life insurance benefits to certain former associates under a postretirement benefit plan (“Postretirement Benefit Plan”).  Net periodic benefit income for the Postretirement Benefit Plan includes the following (income) and expense components:

 

 

 

THIRTEEN

 

 

 

WEEKS ENDED

 

 

 

April 28,

 

April 30,

 

 

 

2012

 

2011

 

Interest cost

 

$

35

 

$

45

 

Recognition of net actuarial gain

 

(94

)

(125

)

Net periodic benefit income

 

$

(59

)

$

(80

)

 

During the first quarter of 2012, the Company contributed $48 to fund the Postretirement Benefit Plan, and anticipates contributing an additional $563 in 2012 for a net annual total of $611.

 

12



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

 

9.             LONG-TERM DEBT

 

On April 2, 2012, in connection with the sale of two of its stores located in Rochester, New York, the Company prepaid its outstanding indebtedness of $5,374 under related mortgage loan agreements.  The Company was required to pay an additional $1,026 due to the early termination.  In addition, $143 of unamortized deferred financing fees related to the mortgage agreements was accelerated on the date of termination.  The required additional payment and accelerated deferred financing fees were recognized in loss on extinguishment of debt.

 

10.          INCOME TAXES

 

The provisions codified within ASC Topic 740, Income Taxes (“ASC 740”), require companies to assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence using a “more likely than not” standard.  In accordance with ASC 740, the Company maintained a full valuation allowance throughout 2011 and the first quarter of 2012 on all of the Company’s net deferred tax assets.  The Company’s deferred tax asset valuation allowance totaled $163,815 and $147,148 at April 28, 2012 and January 28, 2012, respectively.

 

Given the Company’s valuation allowance position, no tax benefit was recognized on the Company’s loss before income taxes in the first quarter in each of 2012 and 2011.  The income tax provision of $509 and $700 recorded in the first quarter in each of 2012 and 2011, respectively, reflects certain state income tax expense and recognition of deferred tax liabilities associated with indefinite-lived assets.

 

As a result of the deferred tax asset valuation allowance maintained throughout 2011 and the first quarter of 2012, the changes recognized within other comprehensive income in the first quarter in each of 2012 and 2011 were recorded on a gross basis.

 

As of April 28, 2012, it is reasonably possible that gross unrecognized tax benefits could decrease by $214 within the next 12 months due to the expiration of certain statutes of limitations.

 

11.          CONTINGENCIES

 

The Company is party to legal proceedings and claims that arise during the ordinary course of business.  In the opinion of management, the ultimate outcome of any such litigation and claims will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

 

12.          GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

 

On March 6, 2006, The Bon-Ton Department Stores, Inc. (the “Issuer”), a wholly owned subsidiary of the Company, entered into an Indenture with The Bank of New York, as trustee, under which the Issuer issued $510,000 aggregate principal amount of its 10¼% Senior Notes due 2014 (the “Senior Notes”), of which $464,000 aggregate principal amount was outstanding as of April 28, 2012.  The Senior Notes are guaranteed on a senior unsecured basis by the Company and by each of the Company’s subsidiaries, other than the Issuer, that is an Obligor under the Company’s senior secured credit facility.  Separate financial statements of the Company, the Issuer and such subsidiary guarantors are not presented because the guarantees by the Company and each wholly owned subsidiary guarantor are joint and several, full and unconditional, except for certain customary limitations.  These customary limitations include releases of a guarantee (i) if the guarantor no longer guarantees other indebtedness of the Issuer; (ii) if there is a sale or other disposition of the capital stock of a guarantor and if such sale complies with the covenant regarding

 

13



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

asset sales in the Indenture; and (iii) if the Company properly designates a subsidiary guarantor as an “unrestricted subsidiary” under the terms of the Indenture.

 

The condensed consolidating financial information for the Company, the Issuer and the Company’s guarantor and non-guarantor subsidiaries as of April 28, 2012 and January 28, 2012 and for the first quarter in each of 2012 and 2011 as presented below has been prepared from the books and records maintained by the Company, the Issuer and the guarantor and non-guarantor subsidiaries. The condensed financial information may not necessarily be indicative of the results of operations or financial position had the guarantor and non-guarantor subsidiaries operated as independent entities. Certain intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time.

 

14



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

April 28, 2012

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

 

(Parent

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Company)

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,706

 

$

10,588

 

$

 

$

 

$

14,295

 

Merchandise inventories

 

 

345,563

 

372,732

 

 

 

718,295

 

Prepaid expenses and other current assets

 

 

66,953

 

8,281

 

416

 

(259

)

75,391

 

Total current assets

 

1

 

416,222

 

391,601

 

416

 

(259

)

807,981

 

Property, fixtures and equipment at cost, net

 

 

178,475

 

223,640

 

259,673

 

 

661,788

 

Deferred income taxes

 

 

3,956

 

8,915

 

 

 

12,871

 

Intangible assets, net

 

 

39,426

 

77,767

 

 

 

117,193

 

Investment in and advances to affiliates

 

91,771

 

495,761

 

202,122

 

2,274

 

(791,928

)

 

Other long-term assets

 

 

20,238

 

1,209

 

3,546

 

 

24,993

 

Total assets

 

$

91,772

 

$

1,154,078

 

$

905,254

 

$

265,909

 

$

(792,187

)

$

1,624,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

218,375

 

$

 

$

 

$

 

$

218,375

 

Accrued payroll and benefits

 

 

24,514

 

11,566

 

 

 

36,080

 

Accrued expenses

 

 

59,787

 

78,929

 

1,127

 

(259

)

139,584

 

Current maturities of long-term debt and obligations under capital leases

 

 

1,129

 

2,850

 

7,118

 

 

11,097

 

Deferred income taxes

 

 

6,964

 

10,182

 

 

 

17,146

 

Total current liabilities

 

 

310,769

 

103,527

 

8,245

 

(259

)

422,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and obligations under capital leases, less current maturities

 

 

654,977

 

48,823

 

224,663

 

 

928,463

 

Other long-term liabilities

 

 

126,323

 

54,481

 

1,505

 

 

182,309

 

Total liabilities

 

 

1,092,069

 

206,831

 

234,413

 

(259

)

1,533,054

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

91,772

 

62,009

 

698,423

 

31,496

 

(791,928

)

91,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

91,772

 

$

1,154,078

 

$

905,254

 

$

265,909

 

$

(792,187

)

$

1,624,826

 

 

15



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Balance Sheet

January 28, 2012

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

 

(Parent

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Company)

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1

 

$

3,741

 

$

10,530

 

$

 

$

 

$

14,272

 

Merchandise inventories

 

 

352,442

 

347,062

 

 

 

699,504

 

Prepaid expenses and other current assets

 

 

56,496

 

12,379

 

547

 

(390

)

69,032

 

Total current assets

 

1

 

412,679

 

369,971

 

547

 

(390

)

782,808

 

Property, fixtures and equipment at cost, net

 

 

181,002

 

228,965

 

267,166

 

 

677,133

 

Deferred income taxes

 

 

3,769

 

8,616

 

 

 

12,385

 

Intangible assets, net

 

 

40,358

 

78,807

 

 

 

119,165

 

Investment in and advances to affiliates

 

131,606

 

474,697

 

216,969

 

1,103

 

(824,375

)

 

Other long-term assets

 

 

22,168

 

1,189

 

3,355

 

 

26,712

 

Total assets

 

$

131,607

 

$

1,134,673

 

$

904,517

 

$

272,171

 

$

(824,765

)

$

1,618,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

205,492

 

$

 

$

 

$

 

$

205,492

 

Accrued payroll and benefits

 

 

22,743

 

8,893

 

 

 

31,636

 

Accrued expenses

 

 

75,503

 

85,736

 

2,006

 

(390

)

162,855

 

Current maturities of long-term debt and obligations under capital leases

 

 

1,568

 

2,797

 

8,066

 

 

12,431

 

Deferred income taxes

 

 

6,581

 

9,650

 

 

 

16,231

 

Total current liabilities

 

 

311,887

 

107,076

 

10,072

 

(390

)

428,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and obligations under capital leases, less current maturities

 

 

590,557

 

49,555

 

230,836

 

 

870,948

 

Other long-term liabilities

 

 

130,082

 

55,444

 

1,477

 

 

187,003

 

Total liabilities

 

 

1,032,526

 

212,075

 

242,385

 

(390

)

1,486,596

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

131,607

 

102,147

 

692,442

 

29,786

 

(824,375

)

131,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

131,607

 

$

1,134,673

 

$

904,517

 

$

272,171

 

$

(824,765

)

$

1,618,203

 

 

16



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirteen Weeks Ended April 28, 2012

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

 

(Parent

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Company)

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

278,398

 

$

362,373

 

$

 

$

 

$

640,771

 

Other income

 

 

4,941

 

8,585

 

 

 

13,526

 

 

 

 

283,339

 

370,958

 

 

 

654,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

183,847

 

237,369

 

 

 

421,216

 

Selling, general and administrative

 

 

103,736

 

135,030

 

(3,541

)

(6,985

)

228,240

 

Depreciation and amortization

 

 

8,315

 

11,042

 

2,830

 

 

22,187

 

Amortization of lease-related interests

 

 

529

 

654

 

 

 

1,183

 

(Loss) income from operations

 

 

(13,088

)

(13,137

)

711

 

6,985

 

(18,529

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany rental and royalty income

 

 

 

 

6,985

 

(6,985

)

 

Equity in losses of subsidiaries

 

(40,271

)

(13,088

)

 

 

53,359

 

 

Interest expense, net

 

 

(14,095

)

(2,640

)

(3,838

)

 

(20,573

)

Loss on extinguishment of debt

 

 

 

 

(1,169

)

 

(1,169

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(40,271

)

(40,271

)

(15,777

)

2,689

 

53,359

 

(40,271

)

Income tax provision

 

509

 

509

 

242

 

 

(751

)

509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(40,780

)

$

(40,780

)

$

(16,019

)

$

2,689

 

$

54,110

 

$

(40,780

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended April 28, 2012

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

 

(Parent

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Company)

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(40,780

)

$

(40,780

)

$

(16,019

)

$

2,689

 

$

54,110

 

$

(40,780

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of pension and postretirement benefit plans

 

1,596

 

1,596

 

 

 

(1,596

)

1,596

 

Other comprehensive income

 

1,596

 

1,596

 

 

 

(1,596

)

1,596

 

Comprehensive (loss) income

 

$

(39,184

)

$

(39,184

)

$

(16,019

)

$

2,689

 

$

52,514

 

$

(39,184

)

 

17



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Operations

Thirteen Weeks Ended April 30, 2011

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

 

(Parent

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Company)

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

282,229

 

$

367,652

 

$

 

$

 

$

649,881

 

Other income

 

 

6,030

 

8,570

 

 

 

14,600

 

 

 

 

288,259

 

376,222

 

 

 

664,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of merchandise sold

 

 

181,973

 

237,294

 

 

 

419,267

 

Selling, general and administrative

 

 

100,977

 

129,809

 

25

 

(8,772

)

222,039

 

Depreciation and amortization

 

 

9,286

 

12,287

 

2,940

 

 

24,513

 

Amortization of lease-related interests

 

 

617

 

578

 

 

 

1,195

 

Loss from operations

 

 

(4,594

)

(3,746

)

(2,965

)

8,772

 

(2,533

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany rental and royalty income

 

 

 

1,585

 

7,187

 

(8,772

)

 

Equity in losses of subsidiaries

 

(35,288

)

(4,918

)

 

 

40,206

 

 

Interest expense, net

 

 

(16,326

)

(2,975

)

(4,004

)

 

(23,305

)

Loss on extinguishment of debt

 

 

(9,450

)

 

 

 

(9,450

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(35,288

)

(35,288

)

(5,136

)

218

 

40,206

 

(35,288

)

Income tax provision

 

700

 

700

 

365

 

 

(1,065

)

700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(35,988

)

$

(35,988

)

$

(5,501

)

$

218

 

$

41,271

 

$

(35,988

)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Comprehensive (Loss) Income

Thirteen Weeks Ended April 30, 2011

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

 

(Parent

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Company)

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(35,988

)

$

(35,988

)

$

(5,501

)

$

218

 

$

41,271

 

$

(35,988

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of pension and postretirement benefit plans

 

503

 

503

 

 

 

(503

)

503

 

Amortization of cash flow derivatives

 

452

 

452

 

 

 

(452

)

452

 

Other comprehensive income

 

955

 

955

 

 

 

(955

)

955

 

Comprehensive (loss) income

 

$

(35,033

)

$

(35,033

)

$

(5,501

)

$

218

 

$

40,316

 

$

(35,033

)

 

18



 

THE BON-TON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

The Bon-Ton Stores, Inc.

Condensed Consolidating Statement of Cash Flows

Thirteen Weeks Ended April 28, 2012

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

 

(Parent

 

 

 

Guarantor

 

Non-Guarantor

 

Consolidating

 

Company

 

 

 

Company)

 

Issuer

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net cash provided by (used in) operating activities

 

$

 2,028

 

$

 (39,340

)

$

 4,911

 

$

 891

 

$

 (1,959

)

$